In a new development, the World Bank (WB) forecasts that global economic growth will strengthen to 2.7 per cent in 2017. This is as a result of improvements in manufacturing and trade, rising market confidence, and stabilising commodity prices in commodity-exporting emerging markets and developing economies.
The new global development is good news for commodity exporting countries such as Uganda because it will result in increased earnings from commodity exports.
In its updated Global Economic Prospects June 2017 released this week in Washington DC, the WB says growth in advanced economies is expected to accelerate to 1.9 per cent in 2017, which will also benefit the trading partners of these countries.
The Bank says global financing conditions remain favourable and commodity prices have stabilised. Against this improving international performance, growth in emerging markets and developing economies as a whole will pick up to 4.1 per cent this year from 3.5 per cent in 2016.
Growth among the world’s seven largest emerging economies is forecast to increase and exceed its long-term average by 2018.
WB is optimistic, saying the recovering economic activity in these economies should have significant positive effects for growth in other emerging and developing economies all over the globe.
On other hand, the Bank says: “Nevertheless, substantial risks cloud the outlook. New trade restrictions could derail the welcome rebound in global trade, (and) persistent policy uncertainties could dampen confidence and investment.”
Over the longer term, WB says persistently weak productivity and investment growth could erode long-term growth prospects in emerging markets and developing economies that are key to poverty reduction.
“For too long, we have seen low growth hold back progress in the fight against poverty, so it is encouraging to see signs that the global economy is gaining firmer footing,” the WB Group President Jim Yong Kim, said, adding: “With a fragile but real recovery now underway, countries should seize this moment to undertake institutional and market reforms that can attract private investment to help sustain growth in the long-term. Countries must also continue to invest in people and build resilience against overlapping challenges, including climate change, conflict, forced displacement, famine and disease.”
The report also highlights concern about mounting debt and deficits among emerging markets and developing economies, raising the prospect that an abrupt rise in interest rates or tougher borrowing conditions might be damaging.
At the end of 2016, government debt exceeded its 2007 level by more than 10 percentage points of Gross Domestic Product (GDP) in more than half of emerging markets and developing economies and fiscal balances worsened from their 2007 levels by more than 5 percentage points of GDP in one-third of these countries.
And for Uganda’s situation for the case of financial year 2016/17 net present value to the GDP, was 31 per cent.
“The reassuring news is that trade is recovering,” said the WB chief economist Paul Romer.
He added: “The concern is that investment remains weak. In response, we are shifting our priorities for lending toward projects that can spur follow-on investment by the private sector.”
A bright spot in the outlook is a recovery in trade growth to 4 per cent after a post-financial crisis low of 2.5 per cent last year.
The report highlights a key area of weakness in global trade, and trade among firms not linked through ownership.
It stresses that such trade through outsourcing channels has slowed much more sharply than intra-firm trade in recent years.
“After a prolonged slowdown, recent acceleration in activity in some of the largest emerging markets is a welcome development for growth in their regions and for the global economy,” said Mr Ayhan Kose, the Bank’s development economics prospects director.
East Asia and Pacific. Growth is projected to ease to 6.2 per cent in 2017 and to 6.1 per cent in 2018..
Europe and Central Asia. Growth in Europe and Central Asia is forecast to accelerate broadly to 2.5 per cent in 2017 and to 2.7 per cent in 2018, supported by continued recovery among commodity exporters.
Latin America and the Caribbean. Growth is projected to strengthen to 0.8 per cent in 2017 as Brazil and Argentina emerge from recessions. Middle East and North Africa. Growth in the region is projected to fall to 2.1 per cent in 2017 as the adverse impact of Organisation of the Petroleum Exporting Countries production cuts on oil exporters outweighs modestly improving conditions in oil importers. South Asia. Growth in the region is forecast to pick up to 6.8 per cent in 2017 and accelerate to 7.1 per cent in 2018, reflecting a solid expansion of domestic demand and exports.
Sub-Saharan Africa. Growth in sub-Saharan Africa is forecast to pick up to 2.6 per cent in 2017 and to 3.2 per cent in 2018, predicated on moderately rising commodity prices and reforms to tackle macroeconomic imbalances.